Inflation Pressures

Robert Kuttner demonstrates convincingly (Op-Ed Page, March 6) that it is not wages and salaries fueling inflation. He cites runaway medical costs, the cheap dollar and the federal budget deficit as the sources of inflation.

Kuttner omits another source of inflation. That is the bloated defense budget. When an economy is growing, even at a rate of 2% (in the last quarter of 1988), the production of military goods contributed to inflation. Those military goods, such as missiles, tanks, etc. cannot be purchased by consumers nor can those goods be purchased by producers for productive machinery. However, employees who produce the military goods, stockholders who receive dividends from defense industries, use their wages, salaries and dividends to purchase consumer goods or capital goods--not missiles or tanks.

Therefore we have an imbalance; too much money income chasing too few consumption goods and productive machinery. Put another way, there is “excess purchasing power.” As Kuttner states, the danger is that the Federal Reserve will try to chill the economy--squeeze out “excess purchasing power"--with any “icy bath of tight money.” In other words, the Fed will induce a recession and unemployment, a very “icy bath” for millions of people.

A more constructive and equitable policy would be to cut the deficit by reducing the bloated defense budget and increasing taxes on the very high income groups.



Santa Monica